Grocers face new challenges as the pandemic wanes

Despite a devastating pandemic and related labor and supply chain challenges, the past two years benefited grocers. Their shares grew as people hunkered down in their homes and re-discovered (or discovered) the joys of cooking.

But 2022 is shaping up to be more problematic. Total retail food sales in the U.S. remain above pre-pandemic levels, according to the USDA, but sales growth is expected to slow to 3.3% in 2022, down from 4.5% in 2021, and 12.5% in 2020.

Why?

• Grocers once again face multiple competitors for consumer dollars
• Online shopping grew exponentially over the last two years, putting a premium on loyalty programs and ecommerce platforms that require continuous investment and fine-tuning
• A workhorse grocery marketing tool, the print circular, is losing its reach due to declining newspaper circulation, or even disappearance in smaller markets

And then there’s the gorilla in the room — higher food prices. The cost of food prepared at home rose 10% over the 12 months ending in March, the sharpest 12-month increase in 41 years and higher than the rise in the cost of food consumed away from home.

This means as competition for consumer dollars heats up, one reliable tactic for attracting grocery shoppers, price promotions, are going to be harder and more expensive to execute.

So how are grocers going to spend their budgets to win and grow share?

It’s a particularly urgent question for regional grocers, who face the same challenges capturing share that they did before the pandemic: the grocer across the street sells almost 99% of the same products they do. And now a marketing tool they’ve traditionally relied on to drive traffic — the print circular/insert— might not deliver the results they need.

Circulars, used for decades to saturate markets with weekly coupons and price promotions, tucked into your daily newspapers, face headwinds. First, there’s the cost of offering promotions already mentioned. Then the traditional means for getting circulars into homes, newspapers, are in steep decline.

As of early 2020, nearly 25% of the 9,000 U.S. newspapers published 15 years ago had folded, according to a University of North Carolina study. And it’s not just affecting sparsely populated rural areas. Big cities and affluent metro areas have been hit as well. The last two years accelerated the trend.

Shared mail, another popular delivery method for retail circulars, is also struggling, with increased postal rates leading to market and frequency adjustments.

Circulars still do a great job driving customers to stores. The challenge today is getting them into homes.

Circulars allow grocers to advertise heavily discounted items, say a tube of toothpaste that’s normally $2.99 on sale for $1.49 — below the cost at everyday-low-price retailers like Target and Walmart. Then the next week they promote something else. Getting a lot of new items in front of customers consistently delivers the twice-a-week visits, online or in-store, that grocers need.

When newspapers’ circulation began to decline two decades ago, publishers compensated by offering a Total Market Coverage (TMC) product. If a paper had paid circulation that reached 50% of households, the publisher would distribute circulars to the other 50%, either by mail or an independent delivery service. Eight or 10 advertisers participated in the bundle, not only grocery stores but local pizza joints, pharmacy chains, tire stores, home improvement retailers, etc.

But as paid subscriptions continued to fall to low double- or even single-digit penetration in many markets, the TMC option became too impractical and expensive for many publishers.

Grocers are reluctant to move away from print inserts as a marketing tool because they work so well. But newspapers’ decline means they need to figure out what else to do with their media budgets.

“We’ve gone from being able to put one million circulars in a market to only being able to place 200,000 to 300,000, with no other options to get more into the hands of consumers,” said George Kakaras, a director of marketing analytics for Quad.

To get a sense of the challenge, one Quad client lost the ability to distribute almost 4 million circulars a month due to closed print outlets.

In today’s crowded media landscape, there are multiple platforms available to create impressions. What mix will generate the same number of powerful impressions is the question — the impact of a carousel ad on Facebook is different than that of a six-page circular with 300 items.

Generally, connected TV (CTV), digital audio, social media platforms, as well as local spot TV and radio and direct mail can be combined to deliver a similar impact to circulars.

Current – 8 Weeks

• Media: mainly print
• Impressions: 401,600
• Client Cost: $24,424

8-Week Test

• Media: Print, radio, social
• Impressions: 1,456,438
• Client Cost: $38,526

Repurposed media spend

• 1,054,838 More impressions
• $14,102 Additional client costs

Often, grocery marketers’ impulse is to shift all the unused budget to digital, because it’s less expensive. But competition for online space has driven digital costs higher. Plus, issues like viewability and measurement have raised questions about efficacy.

The key to success is understanding customers at a sub-DMA level. “You have to think about who you want to reach and what their media consumption is,” Kakaras said. “Then look at that data by store location and trade area.” By understanding consumers within a fairly narrow radius (1.5 miles) of stores, grocers can geotarget ads for an economical media spend, and deliver personalized messaging.

Store locations are important because in-store grocery shopping remains dominant. Convenience emerged as a major driver of where people shop over the past couple years. E-grocery market share is growing, but was only 9.5% in 2021, according to Statista.

Does that mean grocers need a media plan for every store? Pretty much. That plus investing to enhance loyalty and ecommerce platforms, and the right media analytics and planning tools, will position grocers for future growth.

Want to learn more about grocery marketing? Here’s some additional reading.

• Localizing content for increased sales (case study)